January 5, 2014 – No Accounting for Government Cost: The financial position of the U.S. is not just troubled; it is artificially created to fool the people.
The nation’s budget deficit and debt are exponentially higher than what our politicians say they are. None of the headline figures used as the basis of public discourse have any relevance to the true state of U.S. finances.
The government’s financial reporting is misleading because our political leaders have subverted the democratic process to advance their personal interests. They have spent enormous sums of taxed and borrowed money to endear themselves to the electorate, but they do not want to be held accountable for the full extent of this spending. Hence, the legislative and executive branches collude to underreport expenditures.
In reality, the federal government’s existing legal obligations exceed $90 trillion, which is far above the carefully defined debt-ceiling limit of $16.7 trillion and is almost six times the size of the gross domestic product. The reported budget deficit for fiscal 2012 was $1.1 trillion, when a more realistic accounting would show a $5.8 trillion deficit. Recently, the Treasury Department reported that the budget deficit for fiscal 2013 was $680 billion, but the true deficit cannot be calculated without the 2013 Financial Report of the United States Government, scheduled for publication on Feb. 26.
The Constitution’s statement and account clause requires that “a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.” Congress’ false reporting has resulted in the violation of several rights, including the right to vote, freedom of speech, due process, equal protection, the right to financial information, and the right to political accountability.
As Supreme Court Justice William O. Douglas said in a dissent in 1974, “The Framers of our Constitution deemed fiscal information essential if the electorate was to exercise any control over its representatives and meet their new responsibilities as citizens of the Republic.” The failure to publish a complete and truthful statement and account of the nation’s finances has made our republic dysfunctional, plagued by successive budget-deficit and debt-ceiling crises.
The official statement and account, which is called the “Combined Statement of Receipts, Outlays and Balances,” is not much known or used by the public, including the media; is not central to any discussion of the nation’s finances; and is not viewed as a major publication by any recent Congress or administration. The government’s two primary financial reports are the President’s Budget and the Financial Report of the U.S. Government. But their accounting principles violate the Constitution.
The government’s accounting rules cannot be reconciled with the statement-and-account clause’s “all public Money” requirement. The clause has no exceptions for entities or programs that our politicians want to put off-budget, off-balance sheet, and out of mind. If the important information is described at all, it’s only in footnotes.
Congress goes wrong whenever it commits the country to future expenditures and creates permanent appropriations to make that spending automatic. Such actions have to be reflected in the financial statements, and if they are not, the government is committing fraud on its citizens.
THE THREE MAJOR VIOLATIONS ARE:
1) The Federal Reserve System, Fannie Mae, and Freddie Mac, with total assets of $4 trillion, $3.3 trillion, and $2 trillion, respectively, are not consolidated into the federal government’s balance sheet.
2) The federal government’s $24.2 trillion net-present-value obligation for Medicaid was reported for the first time in the 2010 Financial Report and buried in supplementary information in that report. Omitting the disclosure of material information, as was done from the creation of Medicaid through 2009, violates the laws against fraud, and the Supreme Court’s “buried facts” doctrine suggests that even current reporting is unlawful.
3) The total adjusted obligation for Medicare and Social Security reported on the Statement of Social Insurance and in related footnotes is $48.5 trillion. But the statement does not interrelate with the other financial statements, and no current expenses are recorded for required future payments.
The government’s accounting rules are designed to mislead voters about the consequences of their votes. The rules make a mockery of the idea of political accountability. Financial reporting leaves voters with no idea how large federal government expenditures are. They cannot send the responsible representatives packing because they retired from Congress years ago. Their current representatives say that their hands are tied on mandatory spending and they cannot be held accountable.
Adding all of the costs associated with the nation’s social-insurance programs to the amounts reflected in the Financial Report shows that over the past decade the federal government effectively spent more than $88 trillion, while its revenues totaled a little over $22 trillion. The government pretends that obligated money is not spent until the future arrives; a legally correct accounting must accrue for those future payments.
Without an improbable change of heart in the people and their self-serving representatives, the nation has only one place to turn. The Supreme Court should take up a case requiring an interpretation of the statement-and-account clause and decide that reporting must adhere to the Constitution.
A fresh case would take years to be resolved, but the court could consider the matter sooner. In June 2012, the Supreme Court ruled that the Medicaid expansion in the Affordable Care Act was unconstitutional. But each of the opinions issued contained economic and political analysis based on the government’s false financial information. The court should reopen the case to apply the rule of law and restore needed accountability. (Credits: Tim Foley, Joseph H. Marren and Barron’s Magazine).
The Master of Disaster